Many people enjoy managing their own finances and investments. They find satisfaction in keeping up with the ever-changing economy, researching investment options and watching their portfolio grow. Whether it is something they review periodically, or as part of their daily routine, it provides them with a sense of accomplishment and even joy.
However, people often arrive at a point in their lives when they need to hire professionals to help guide their financial and investment decisions. For some, a health event may cause them to realize that life is short and perhaps there are other things they would rather be doing with their time. For others, hiring a financial adviser may be a way to involve a spouse or others in financial matters so they are prepared to take over when necessary. There are also people whose wealth has accumulated to the extent that they may require help making complex decisions.
If you are thinking about hiring a financial adviser or firm, there are many things to consider. You may be wondering how to differentiate one firm from the next. Should you base your selection solely on past investment performance? As far as fees, should you go for the lowest cost provider or is there added value in hiring a more expensive provider? Is it important to work with someone who is local? And what about all those alphabet soup designations after advisers names — what do they all mean?
Below are key criteria that you should consider as you research and evaluate professional advisers. You might want to list these in order of importance and take notes on how each firm you interview measures up.
» Trust — Selecting an adviser with integrity is paramount. You will be entrusting this person with your most confidential information and relying on them to help secure your financial future. There must never be a question whether this person or his or her firm have your best interests in mind.
» Alignment — Working with an adviser and firm that do not represent any internal products ensures unbiased recommendations. Knowing that the focus is on your goal achievement as opposed to filling a sales quota builds trust.
» Connection — Feeling in sync with your adviser fosters trust and allows for a more personal relationship. Do they relate to you? Do you feel that they genuinely care about you? Are their values and communication styles in line with yours? Do you feel confident that they will be there for you through the good times and bad? The more you “like” your adviser, the stronger and more meaningful the relationship.
» Fit — Be sure to ask about your adviser’s average client profile and whether they have a minimum fee or asset management amount. Do they deal with clients just like you? Do they have the skills and insights to help you with your specific needs (such as transitioning through a divorce, caring for a special-needs child or selling a business)? Make sure their average client profile is similar to yours and that their advice and services are well suited to your needs.
» Knowledge — Know the credentials. There are more than 200 different designations a financial planner can obtain, but not all of them require extensive coursework, thorough exams and regular continuing education. Beyond academic degrees such as a Master of Science in Financial Planning (MSFP) or a Master of Business Administration (MBA), the CFP® is one of the more respected designations. Ensure that the adviser (and/or his or her firm) is registered with the Securities and Exchange Commission or a state’s securities agency. The term “Registered Investment Adviser” (RIA) describes this registration and carries with it a “Fiduciary Duty” standard beyond that of a broker.
» Strength — Is the firm sizable both in assets under management and in personnel to ensure continuity and adequate capacity to meet your future needs? Has the adviser and firm been in business long enough to demonstrate they’ve been through various market cycles and have stood the test of time? Does the firm maintain almost 100 percent of their client relationships? Do they have established partnerships with highly respected companies, both locally and nationally, to provide additional resources when needed?
» Services — How many services does the adviser and firm provide? How are they handling your investment portfolio — by strategically placing you into outside funds or by being a “hands-on” manager? Beyond investments, are financial planning, insurance, estate planning, tax, real estate and bookkeeping services also provided by the firm or its affiliates?
The following are basic definitions of different types of advisers:
» Investment Adviser — Will help you manage your portfolio.
» Financial Planner — Will review your entire financial life, including retirement plans, insurance coverage, college funding, budgeting, estate planning as well as help advise on your investments. These advisers provide advice on a project basis, and can be paid by the hour.
» Wealth Manager — Combines the services of an Investment Adviser and a Financial Planner to help you plan and manage your entire estate while also ensuring your other advisers are coordinated and working together efficiently.
» Proactive Approach — It is one thing if a firm offers particular services, it’s another if they prompt you when these services would be of greatest value to you. Most people rely on experts to tell them what they need and when they need it. This requires a systematized approach that is customized for each client’s unique needs.
» Convenience — Your adviser needs to be accessible and approachable. This means they are close to your home or work, available and responsive. Your inquiries should be responded to within one business day, as an example. These factors are vital to maintaining a productive relationship.
» Price — You should know exactly what you are paying your adviser and firm. Expenses can come in many forms, including:
» Commissions derived from product sales or based on portfolio trading activity
» Fee-Based (as a percentage of the assets being managed or annual retainer)
» Fee-Only (hourly consulting rate or one-time project fee)
» Custody and trading charges
» Complete transparency of all expenses and a willingness to openly discuss is essential
Other Due Diligence Steps to Take
» References — Speaking with existing clients and outside professionals who have firsthand experience with the adviser is an excellent way to gain insight into their reputation and ability to deliver as promised.
Read their Form ADV Part 2A and 2B, which a regulated investment adviser must provide you 48 hours before you contract for services. It details the firm’s business model, compliance history, pay structure and potential conflicts of interest.
» Run a background check — You can see whether an adviser has ever been disciplined through the SEC, the Financial Industry Regulatory Authority, or your state insurance and security departments. This information is public record and can easily be checked. If there is anything that makes you uncomfortable, ask questions.
Hiring a financial adviser or firm is a major decision that will affect your family’s wealth and peace of mind. Therefore, it is usually good to meet with more than one adviser or firm so you can make an adequate comparison. Be sure to ask questions during your interviews to ensure that you understand their approach, such as about how they get paid and what communication you can expect to receive from them (both the type and frequency).
After a complete and thorough research and evaluation process, you should be able to confidently select the adviser or firm that is the best fit for you.
— Dannell Stuart CFP, ChFC, CLU, CASL is business development director at Mission Wealth Management. She can be contacted at dstuart@missionwealth.com. Click here for more information.